Rainy day fund plays major role in times of financial stress

By BenefitsPro

By Paula Aven Gladych

Households that don’t have emergency savings are more likely to have problems paying their mortgage when experiencing financial difficulties, according to a new study by the FINRA Investor Education Foundation.

People who don’t have rainy day funds are three times more likely to make a late mortgage payment and almost twice as likely to be involved in a foreclosure.

“Softening the Blow: Income Shocks, Mortgage Payments and Emergency Savings” is based on data from the 2009 National Financial Capability Study, an only survey of more than 28,000 respondents in all 50 states and the District of Columbia.

Minorities were 52 percent more likely to make late mortgage payments than non-minorities and dependents in the household increased the likelihood of late mortgage payments by 48 percent, the study found.

“The Great Recession and the housing downturn devastated the finances of families across the country,” said FINRA Foundation President Gerri Walsh. “Data collected during this period, when many family budgets were stretched past the breaking point, suggest that having a rainy day fund can make the difference between being able to stay in your house and making late mortgage payments and facing foreclosure. That’s an important lesson for all Americans, especially as the economy continues to recover.”

The FINRA Foundation’s new study shows the extent to which lower-income Americans were especially unable to withstand an income shock during the Great Recession. Among households experiencing an income shock, those with incomes below $50,000 were 43 percent more likely to make late mortgage payments relative to their more affluent counterparts.

The FINRA Investor Education Foundation is the largest foundation in the United States dedicated to investor education.